By recording an amount in the allowance for doubtful accounts it will also mean that the bad debt expense will be reported closer to the time of the sales—instead of waiting until the account is determined to be uncollectible. Hence, the matching principle is carried out more effectively.
The allowance account and the related bad debt expense is encouraged for financial reporting; however, it is not acceptable for income tax reporting. The Internal Revenue Service prefers that any expense for bad debts be deducted later—when an account is actually written off as uncollectible.
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